French government resigns after leftists call for U-turn

French Prime Minister Manuel Valls.

French President Francois Hollande asked his prime minister today to form a new government, looking to impose his will on the cabinet after rebel leftist ministers had called for an economic policy U-turn.

The surprise move came the day after outspoken Economy Minister Arnaud Montebourg had condemned what he called fiscal "austerity" and attacked euro zone powerhouse Germany's "obsession" with budgetary rigour.

In a terse statement, Hollande's office said Prime Minister Manuel Valls had handed in his government's resignation, opening the way for a reshuffle just four months after it took office.

"The head of state asked him to form a team that supports the objectives he has set out for the country," the statement said, suggesting Valls would continue trying to revive the euro zone's second largest economy with tax cuts for businesses while slowly reining in its public deficit by trimming spending.

France has lagged other euro zone economies in emerging from a recent slowdown, fuelling frustration over Hollande's leadership, both within his Socialist party and further afield.

The new cabinet will be announced tomorrow and there was no immediate word on who would stay and who would go.

If Hollande decided to sack Montebourg, who is viewed as a potential presidential rival, he would risk seeing the ousted minister take with him a band of rebel lawmakers and deprive him of the parliamentary majority he needs to push through reforms.

Opposition conservatives, who for weeks have been embroiled in their own leadership rows, called for an outright dissolution of parliament, as did the far-right National Front.

"With half of the presidential mandate already gone, it doesn't bode well for the ability of the president, or whatever government he chooses, to take key decisions," said former Prime Minister Francois Fillon, one of handful of hopefuls for the conservative ticket in the 2017 presidential election.